Hotels still high on foreign buyers’ lists

Melbourne’s reputation as the events capital of Australia ensures strong occupancy rates for CBD hotels right throughout the year, leading to strong demand from offshore groups for either established hotels or hotel development sites.

With Melbourne playing host to yet another major international event, the International Convention of Jehovah’s Witnesses, and the resulting shortage of available hotel rooms, it is becoming clear that owning accommodation and hotels in Melbourne’s CBD can be a lucrative business.

Whilst there has been much press coverage of the number of international property groups acquiring CBD residential development sites, there has been a quiet revolution in the ownership of our hotel industry.

Recent transactions include the property located at 472 Bourke St, known as Equity Chambers, which sold to a Chinese consortium for $15 million last month. Whilst the previous owners, Malaysian owned DKLS and the owners before them, Williamson Properties, both planned residential developments, the new owners have indicated a hotel would be placed above the existing six-level building.

After acquiring the Jasper Hotel at 489 Elizabeth St from the YWCA, a private Malaysian family wasted no time in undertaking extensive renovations on the asset. Closing the hotel for five months and investing $7 million on refurbishments has resulted in the addition of 31 new rooms plus a new restaurant and conference facilities adding much needed capacity to the northern end of the CBD. The new look hotel is scheduled to be launched on November 12.

Two other private Malaysian groups have also commenced hotel developments, one near the corner of Flinders and King streets and the other in Exhibition St.

Not to be outdone by their northern neighbours, Singaporean-listed hotel company, Fragrance Group, is now planning 300 hotel rooms in its recently-acquired development site at 555 Collins St.

Fragrance Group has also recently acquired the old Savoy Tavern on the corner of Bourke and Spencer streets which will make way for a 50-storey mixed used development which is understood to also include a hotel component.

The above transactions are just a small snap-shot of the level of development currently being undertaken by international hotel groups in recent months.

Looking to the future, it will be interesting to see if the Federal Government’s introduction of the Significant Investor Visa will give rise to an increase in the level of hotels acquired by offshore investors.

Known as the 888 visa, migrants are provided a fast-tracked application process and no English test by making a qualifying investment. While a direct investment in most property is not considered a qualifying investment, it is possible for a hotel acquisition to qualify under the visa.

This has the potential to skew new investment towards hotels and away from other forms of property.